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After you define the three tiers of non customers, the idea is that you poll these noncustomers and find out what it would take to purchase your product or service. For example, Nintendo asked people in their three tiers why they didn’t play games. Then they asked what would entice them to play. They took the answers to those questions and designed the Nintendo Wii. It has been a huge hit, attracting noncustomers who never before played electronic games.

OK, so now you have created your PMS map and are realizing most of your products are in a great big bloody Red Ocean where you are constantly fighting off the competition in a shrinking pool of revenue and profit. You have created your strategy canvas, and have tested the competitive factors so you know just what factors the market makes decisions. Now what?

Well, this is the fun part. Looking at your strategy canvas and the competitive factors, there are four things you can do with competitive factors. You can eliminate them, reduce your investment or level of offering in them, raise your investment or level of offering in them, or create new ones. It is these actions or strategic moves taken by the CEO that helps to formulate the new blue ocean strategy.

Note: A few days ago I attended the ASTD conference in Washington, DC specifically to hear the keynote address given by Renee Mauborgne. Rene is co-researcher and co-author for the best selling book Blue Ocean Strategy: How to create uncontested market space and make the competition irrelevant.

According to Tim Hill, President, Blackboard Learn Professional Education, Blackboard Inc, the training and development industry is a splintered industry with a lot of competition. “Very red”, he says, when putting it in the context of Blue Ocean Red Ocean terminology, where blue oceans are new market spaces with no competition, and red oceans are the current market spaces where all the competitors compete.

The Strategy Canvas is a critical diagnostic and action tool utilized in the Blue Ocean Strategy process. It allows an organization to visualize the competitive factors and the current state of play of those factors within an industry and then compares the organization’s offering with those of the industry in general. When combined with other tools, the strategy canvas helps you create your new blue ocean strategy.

We have already discussed Value Innovation as being key to Blue Ocean Strategy (see April 1, 2009 blog post). The strategy canvas helps you to create value innovation. As you read this, refer to the strategy canvas example below of the electronic games industry.

Often in the corporate world, we get so buried in numbers and words that it is difficult to see the big picture. One of the key principles of Blue Ocean Strategy is to focus on the big picture, not the numbers. How much easier it is to understand a position or concept when you can see a picture of it.

The Pioneer-Migrator-Settler (PMS) Map is a diagnostic tool that allows you to see just how your revenue generating products and services fare in their contribution to the future growth of the company. It helps you determine if you are fighting for your life in the Bloody Red Ocean of competition or enjoying the beautiful deep Blue Ocean with no competition in sight. Key products are organized into three categories and then displayed by size.

Don’t you just hate when people make up terminology to suit their purpose? You may think that Chan Kim and Renee Mauborgne may fall into the category of trying to coin new words to set their concepts apart, but there is method to the madness.

The concept is quite simple to understand. The Red Ocean is where every industry is today. There is a defined market, defined competitors and a typical way to run a business in any specific industry. The researchers called this the Red Ocean, analogous to a shark infested ocean where the sharks are fighting each other for the same prey.

In order to have value innovation, the value to the customer, the price to the customer and the cost to the company, must all be aligned. If any of these three elements are out of alignment, the initiative will not be a commercial success. Just try to have the price out of alignment with the cost. The company will lose money. Or have the price not in line with the value to the customer, the customer won’t buy and the product won’t be a commercial success.

Value Innovation is the cornerstone of Blue Ocean Strategy® and is created through a series of strategic moves resulting in a product or service substantially different from any other offering. These strategic moves also function to lower costs to the producer of the product or service, resulting in the capability to offer a high value product or service that has not been seen before, at a very reasonable price to the buyer.

Why value innovation? Value without innovation will give only incremental gains easily duplicated by the competition. Innovation without value is typically technology oriented and won’t be a commercial success.

Well, we finally got our new website launched. Check it out at http://www.corporatestrategy.com/. Be sure and listen to the audio by clicking my photo on the home page and don’t miss the personal scrapbook link at the bottom of the About Dr. Layton page. Please let me know if you have any problems at all or have suggestions that would make it better.

Some people seem to struggle with the tools of Blue Ocean Strategy when they apply them to their own organizations as part of their strategic planning process. Starting with the next blog, I will cover each tool separately and give simple instructions for how to apply each one, step by step.

Dr. Sarah Layton, CMC, CEO and Managing Partner of Corporate Strategy Institute (www.corporatestrategy.com), was honored with the national Distinguished Service Award at the Institute for Management Consultants, USA, convention recently in Reno, Nevada.

The Institute for Management Consultants – USA, (www.imcusa.org) is the professional association for management consultants, with its mission to promote excellence and ethics in management consulting through certification, education and professional resources.